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Feather River Community College District Management’s Discussion and Analysis

Fiscal Year Ending June 30, 2012 This discussion and analysis of Feather River Community College District’s financial statements provides an overview of the District’s financial activities for the year ended June 30, 2012. Management has prepared the financial statements and the related footnote disclosures along with this discussion and analysis. These financial statements and this discussion and analysis reflect the financial activities of the Feather River Community College District. In accordance with Statement No. 14, as amended by Statement No. 39 of the Governmental Accounting Standards Board (GASB), the financial data of the Foundation have been combined with that of the District in these financial statements. Overview of the Financials Financial statements communicate the financial condition and operational results of Feather River Community College District. Our statements are presented using the terminology and classifications of activity that conform to the Governmental Accounting Standards Board’s Statements of Financial Accounting. Financial Statements The three basic financial statements included in this report are: the Statement of Net Assets; the Statement of Revenues, Expenses, and Change in Net Assets; and the Statement of Cash Flows.

• Statement of Net Assets. This report presents the financial position as of the end of the fiscal year (June 30th) including assets, liabilities, and net assets (formerly fund balance). It should help the reader obtain information on the College’s ongoing ability to provide services, as well as liquidity, financial flexibility (ability to respond to unexpected needs and opportunities), ability to meet obligations, and needs for external financing.

• Statement of Revenue, Expenses, and Change in Net Assets. This report

presents financial activity during the fiscal year, thereby reconciling the beginning and end-of-year net assets contained in the Statement of Net Assets. It provides profit and loss information and helps to distinguish profit and loss from operations and capital activities.

• Statement of Cash Flows. This report presents cash-related activities during the

fiscal year, thereby reconciling the beginning and end-of-year cash balances contained in the balance sheet. Like those required of for-profit entities, this statement segregates the activities of the organization into three categories: cash flows from operations, investing, and financing activities. This statement provides data that supplements information contained in the statement of activities (e.g., it adjusts for the effects of accrual accounting, removes certain non-cash activities such as depreciation, and discloses cash generated or used by operating activities, investments, and new financing).

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Financial and Enrollment Highlights Full-time Equivalent Students (FTES) decreased slightly in the 2011-12 fiscal year. This decrease represented .25% of the total FTES generated when compared to the 2010-11 fiscal year. The decrease in FTES totaled 4, which represented a decrease in total FTES generated but represents no decrease or increase related to funded FTES. The total funded FTES represents approximately 1,624 for the past two years.

Revenues are recorded in three categories; operating revenues, non-operating revenues and capital revenues. Operating revenues include tuition and fees, grants and contracts, revenues from auxiliary enterprises and interest. Non-operating revenues are comprised of state apportionment, local property taxes, state taxes, interest income, Pell grants and other. Capital revenues consist of state apportionments, local property taxes and grants & gifts. Overall revenues were $19,558,956 ($6,061,125 in operating revenues, $13,092,152 in non-operating revenues, and $405,679 in capital revenues). This was $4,617,993 less revenue from the prior year and is primarily due to reductions in non-capital grants and contracts from the State related specifically related to the Learning Resource Center. Expenses are recorded as operating and non-operating expenses. All expenses except some debt related capital expenses are categorized as operating expenses. Operating expenses reflect depreciation and financial aid expenses. Overall expenses were $19,693,828. This was $104,371 less than expenses for the prior year. This was primarily attributable to less student financial aid and scholarships which offset small increases in other operating expenses. The District paid down $150,417 in long-term lease/debt obligations during the 2011-12 fiscal year.

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Statement of Net Assets The Statement of Net Assets includes all assets and liabilities using the accrual basis of accounting, which is similar to the accounting used by most private-sector institutions.

• Cash and cash equivalents reflects operating cash on hand. Restricted cash and cash equivalents reflects cash held for restricted purposes by legislation, by contract, or by grantor agency. This includes cash for capital outlay projects, debt repayment, and future post retirement benefits. Most of the cash and cash equivalents are held at the Plumas County Treasurer’s office in accordance with Education Code Section 84000. The Plumas County Treasury’s average rate of return was .37% for the fiscal year ended June 30, 2012. Other cash and cash equivalents are held by bank trustees as reserves for debt instruments. More information on cash can be found in the footnotes to the financial statements.

• Receivables include state apportionments, student fees, federal and state grants

and contracts, among other various operating receivables. The increase in the 2011-12 year receivables in comparison to the prior year was due primarily to the receipt and timing of the June, 2012 payment of the apportionment deferrals by the state of approximately $916,000 more than the prior year, there were additional decreases of receivables due to the completion of the Library Resource Center and smaller outstanding receivables for the project in comparison to the prior year amounts.

• Capital assets are those fixed assets for which the acquisition cost exceeds the

thresholds set forth in the District’s Board Policies regarding depreciable assets. Such assets are then depreciated over their useful lives. The financial statements reflect the cost of capital assets, net of accumulated depreciation.

• Accounts payable consist mainly of amounts owed to suppliers for various

operating purchases, to employees for accrued vacation, and to vendors for purchases of capital assets.

• Deferred revenues are amounts received but not yet earned by the District. The

deferred revenues were made up of mostly state categoricals with allowable carryover.

• Long-term debt in total, which includes both current and non-current portions,

increased from the prior year. There were no additional long term leases recorded in the year.

The breakdown of net assets by category for the District is displayed in the following charts:

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Dollar Percent2011-2012 2010-2011 Change Change

ASSETSCURRENT ASSETS Cash & Cash Equivalents 3,564$ 3,208$ 356$ 11.1% Receivables 2,619 2,479 140 5.6% Inventories & Other Assets 128 202 (74) -36.6%TOTAL CURRENT ASSETS 6,311$ 5,889$ 422$ 7.2%

NON-CURRENT ASSETS Note receivable 221$ 221$ -$ 0.0% Capital Assets, Net 13,302 13,239 63 0.5%TOTAL NON-CURRENT ASSETS 13,523$ 13,460$ 63 0.5%

TOTAL ASSETS 19,834$ 19,349$ 485$ 2.5%

LIABILITIESCURRENT LIABILITIES Accounts Payable 761$ 595$ 166$ 27.9% Deferred Revenue 1,475 1,184 291 24.6% Long-term Debt-Current Portion 561 543 18 3.3%TOTAL CURRENT LIABILITIES 2,797$ 2,322$ 475$ 20.5%

NON-CURRENT LIABILITIES Long-term Debt - Non-Current Portion 2,195$ 2,050$ 145$ 7.1%

TOTAL LIABILITIES 4,992$ 4,372$ 620$ 14.2%

NET ASSETSInvested in Capital Assets, Net of Related Debt 12,642$ 12,417$ 225$ 1.8%Restricted 830 1,049 (219) -20.9%Unrestricted 1,370 1,511 (141) -9.3%TOTAL NET ASSETS 14,842$ 14,977$ (135)$ -0.9%

TOTAL LIABILITIES AND NET ASSETS 19,834$ 19,349$ 485$ 2.5%

FEATHER RIVER COMMUNITY COLLEGE DISTRICTSTATEMENT OF NET ASSETS (Condensed)

For the Years Ended June 30, 2012 and 2011(Thousands)

Net assets – the difference between assets and liabilities – are one way to measure the financial health of the District. The Districts net assets consist of the following:

• Unrestricted net assets are funds received to support the general mission of the college. At June 30, 2012 the District has $1,370,395 in unrestricted net assets.

• Capital assets, net of related debt, represent the District’s investment in physical

facilities, land, and capital improvements. The 2010-12 year balance reflected an increase from the prior year due to completion of the Library Resource Center representing equipment.

• Net assets set aside for capital projects is $749,506 at June 30, 2012.

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Statement of Revenues, Expenses, and Change in Net Assets The Statement of Revenues, Expenses, and Change in Net Assets present the operating results of the District, as well as the non-operating revenues and expenses. Annual state appropriations, while budgeted for operations, are considered non-operating revenues according to Generally Accepted Accounting Principles (GAAP). The breakdown of revenues and expenses by category are depicted in the following charts:

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Dollar Percent2011-2012 2010-2011 Change Change

OPERATING REVENUESNet Tuition & Fees 651$ 426$ 225$ 52.8%Grants & Contracts 5,340 9,645 (4,305)$ -44.6%Auxiliary 70 80 (10)$ -12.5%Interest - - -$ 0%TOTAL OPERATING REVENUES 6,061$ 10,151$ (4,090)$ -40.3%

OPERATING EXPENSESSalaries & Benefits 10,123$ 10,092$ 31$ 0.3%Supplies, Material & Other 9,096 9,270 (174)$ -1.9%Depreciation 475 427 48$ 11.2%TOTAL OPERATING EXPENSES 19,694$ 19,789$ (95)$ -0.5%

NON-OPERATING ACTIVITYState Revenues 5,370$ 5,458$ (88)$ -1.6%Local Property Taxes 5,078 5,324 (246)$ -4.6%State Taxes & Other Revenue 337 249 88$ 35.3%Interest Income (Net) (8) (18) 10$ -55.6%Other Non-Operating Revenue 2,315 2,639 (324)$ -12.3%TOTAL NON-OPERATING ACTIVITY 13,092$ 13,652$ (560)$ -4.1%

CAPITAL REVENUESState Apportionment -$ -$ -$ 0%Local Property Taxes & Revenues 10 6 4$ 67%Grant & Gifts 396 367 29$ 8%TOTAL CAPITAL REVENUES 406$ 373$ 33$ 8.8%

CHANGE IN NET ASSETS (135)$ 4,387$ (4,522)$ -103.1%

BEGINNING NET ASSETS 14,977$ 10,590$ 4,387$ 41.4%

ENDING NET ASSETS 14,842$ 14,977$ (135)$ -0.9%

FEATHER RIVER COMMUNITY COLLEGE DISTRICTSTATEMENT OF REVENUES, EXPENSES AND CHANGE IN NET ASSETS

For the Years Ended June 30, 2012 and 2011(Thousands)

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Operating and Non-Operating Revenues grew in fiscal year 2011-2012 as follows:

• State general apportionments increased due to the fact that local property tax apportionment decreased by $245,995 in comparison to the prior year. The state limited the 2011-12 fiscal year workload adjustment to total FTES funding of approximately 1,624 FTES.

• The District’s apportionment was not fully funded which resulted in a deficit

coefficient of .0235% or $263,268 which was applied to the total computation revenue. This amount does not represent the final recalc amounts for the 2011-12 fiscal year.

• Traditionally the District receives a cost of living adjustment (COLA) and

enrollment growth funding from the State. In the 2011-12 fiscal year there were no COLA funds received.

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Operating expenses decreased in 2011-2012 as follows:

• Expenses for employee salaries and statutory benefits decreased with increases on an employee by employee basis based on step and column changes only. There was no cost of living adjustment increases provided. The comparison of the prior year salaries and benefits reflect a decrease due to not filling certain positions and deferring the hiring of positions until the latter half of the fiscal year.

• The cost of supplies, materials, and other operating expenses and services

remained flat.

• Depreciation increased due to the completion of the Library Resource. Statement of Cash Flows The Statement of Cash Flows presents changes in cash from the sources and uses of funds related to operating activities, capital asset acquisitions, and activity from debt instruments. The District participates in a Tax Revenue Anticipation Notes (TRAN) program each year provided through Community College League of California (CCLC). The District’s apportionment funding is primarily through property taxes which are paid twice a year in December and April. This program provides access to short-term loan funds to assist with cash flow needs during the fiscal year.

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FEATHER RIVER COMMUNITY COLLEGE DISTRICT

STATEMENT OF CASH FLOWS (Condensed) For the Years Ended June 30, 2012 and 2011

(Thousands)

Dollar

Percent

2011-2012 2010-2011 Change

Change

CASH (USED IN) PROVIDING BY: Operating Activities $ (11,525) $ (10,024) $ (1,501) 15.0%

Non-Capital Financing Activities 12,176 14,120 $ (1,944) -13.8% Capital and Related Financing Activities (294) (4,237) $ 3,943 -93.1%

Investing Activities - 6 $ (6) -

100.0%

NET INCREASE/(DECREASE) IN CASH $ 357 $ (135) $ 492 -

364.4%

CASH - BEGINNING OF THE FISCAL YEAR $ 3,208 $ 3,343 $ (135) -4.0%

CASH - END OF THE FISCAL YEAR $ 3,565 $ 3,208 $ 357 11.1% In accordance with GAAP, the District recorded $474,869 in depreciation expense for the fiscal year and reflected a liability for compensated absences (accrued vacation not used at June 30) of $330,098. The District Supplemental Employee Retirement Plan (SERP) liability was accrued for $377,920. For additional information concerning Capital Assets and Long-Term Debt, see footnotes to the financial statements. District’s Fiduciary Responsibility The District is the trustee, or fiduciary, for certain amounts held on behalf of students, clubs, donors and employees. The District’s fiduciary activities are reported in separate Statements of Fiduciary Net Assets and Changes in Fiduciary Net Assets. The District is responsible for ensuring that the assets reported in these funds are used for their intended purposes. The District’s fiduciary funds include Post Retiree Health Benefits and Associated Students Trust Fund. The Governmental Accounting Standards Board (GASB) has issued Statement No. 45 which requires governmental agencies, including community colleges, to recognize other postemployment benefits (OPEB). As of June 30, 2012, the District has recorded $1,387,389, which represents two separate groups – Peralta and Other. The District is currently paying the pay-as-you-go liability portion on a yearly basis

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Economic Factors That Will Affect the Future The economic position of the District continues to be severely impacted by the financial health of the State of California. The State of California continues to face significant budget shortages as the economic recovery improved only slightly. Due to traditional state funding uncertainties, a great deal of flexibility is necessary to remain balanced and to continue providing uninterrupted service to the students. Examples of these uncertainties include annual deficit factors, limited or unfunded growth funding, mid-year cuts in apportionment funding, and the continued increases of apportionment deferrals. Feather River Community College District must remain responsive to these variables and financial pressures with sound fiduciary practices, integrated strategic planning, and a collaborative governance approach to the budget process. The District must evaluate its strategic planning and processes and incorporate these priorities as they relate to the college’s mission. This integrated planning process along with the necessary supporting budget will offer quality educational programs that students need to further their educational pursuits. This integrated process will also enhance the financial health and viability of the District going into the future. The State budget was passed prior to the start of the 2012-13 fiscal year but there is uncertainty to the extent of the potential mid-year cuts to the Community College system. The 2012-13 fiscal year State budget assumed that the tax initiative, Proposition 30, on the November, 2012 ballot would pass, thus eliminating the need for mid-year cuts. The passage of the tax initiative would provide for additional funding and relieve a small amount of financial deferrals that has impacted cash flows for all districts. Proposition 30 helps stabilize Community College’s funding in the near term. Proposition 30 was approved by the voters on November 6, 2012, thus eliminating the need for mid-year cuts to funding. The State will implement a sales tax increase and personal income tax increase which is expected to provide the required and anticipated funding for the current 2012-13 year. The results of these tax increases will provide funding expected to be received in June, 2013. The amount is contingent on the magnitude of the revenue generated from anticipated tax increases. The exact amount of available funds will not be known for sure until late in the 2012-13 fiscal year. The economic recovery continues to be fragile but there is promise that the road to recovery has started and will provide stability to California’s budget. The prioritization of the available funds to restore student access and improve student success, thus giving those citizens the opportunity to acquire, improve, and expand their education pursuits, contributes to the planned economic recovery. Historical Perspective: 2012-2013 Fiscal Year Revenues for the 2011-2012 fiscal year increased due primarily to small school exemption that Feather River Community College District took advantage of, whereby the District did not incur the approximate system wide reductions of 6.2%. There were a total of 12 community college districts that took the option of not incurring the state wide budget reductions. By opting for the exemption, the districts will not be entitled to any future growth funding when it becomes available until any growth funding exceeds the exemption amount taken in the 2011-12 fiscal year. The District apportionment revenue did not receive a cost of living adjustment and there was a slight reduction in apportionment funding due to the system wide deficit coefficient. The District received funding for approximately 1,624 total credit and non-credit FTES.

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Operating costs were higher due to salary step increases and overall non-discretionary expenditures. These increases were not offset by any additional funding from the State because there was no cost of living adjustments (COLA), realized for the fifth consecutive year. Effective District management of expenses during the fiscal year helped to offset some of the increases to non-discretionary expenditures. The District deferred filling vacant positions and limited only essential expenditures. Net assets, formerly classified as fund balance, are an indicator of the District’s financial position. For the past five fiscal years, the District’s fund balance for the general fund has ranged between 5 and 8 percent of operating expenditures. Even during challenging financial times, the District has remained structurally balanced. In 2011-2012, the District reflected less than one percent decrease in the total net assets reported. Projected 2012-2013 Fiscal Year The Board of Trustees for Feather River Community College District adopted a balanced budget in August 2012. The current general fund operating budget approved by the Board of Trustees, projects revenues and expenses at $15.5 million. The balanced budget required that $798,757 of Beginning Fund Balance be used to accomplish this position. The 2012-13 fiscal year unrestricted general fund budget assumed that the passage of Proposition 30 would fail and that the State would be required to implement mid-year cuts. The District’s budgeted revenue was projected based on 1,505 FTES, the difference between the revenue and expenses being funded through the use of Beginning Fund Balance. The passage of Proposition 30 was approved by the voters in the general election in November, 2012. With the passage of Proposition 30, the need for mid-year cuts was eliminated. Revenues for the 2012-2013 fiscal year will fund based on the 1,623 FTES base established in the prior year. This represents expected total computational revenue of approximately $11.2 million of unrestricted general fund. The District which began the 2010-11 fiscal period with an agreement with the Feather River Foundation to assume the management of the Fitness Center continues to manage the facility in the 2012-13 fiscal year. The District also began managing the Feather River Residence Hall which requires occupancy guarantees as well as repairs and support staffing. The State of California maintained most categorical funding with basically no increases from the prior year. Student enrollment fees were increased from $36 to $46 per credit unit. The District offered and implemented an incentive based retirement plan, Supplemental Employee Retirement Plan (SERP) which included eleven employees who retired effective June 30, 2012. This included both unrestricted as well as restricted funded employees. The annual cost to the District represents approximately $75K for the next five years.

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Beyond Fiscal Year 2012-2013 The outlook for 2012-2013 and beyond has improved considerably due to the State’s economic recovery, prior year’s budget cuts, and the passage of Proposition 30 which will provide some near term stabilizing of revenue funding to education. The budget challenges in the next several years should be significantly less than what has been experienced in recent years. The Nevada Good Neighbor tuition agreement between California and Nevada expired in November of 2011. The full impact of enrollment to the District has not been completely realized due to the fact that students that were attending prior to the expired agreement are entitled to continue as if the agreement was in effect until those students graduate. Budget assumptions going through the 2016 year would indicate potentially small increases and reduction in deferrals from the State. The impact on the District’s reserve and the required expenditures to meet the Strategic Plan and the District’s mission and goals in providing necessary instructional and student support services, will require constant attention and prioritization. The District is faced with many funding challenges as we strive to serve a growing population in our county with aged facilities. While we have been successful with the bond measure at the state level that funded the new Library Resource Center, we have not completely evaluated the feasibility of a local bond measure for Plumas County. We face costs to replace our aging facilities, upgrade our technology infrastructure, and expand our services to additional areas in the county. We continue to evaluate ways to most effectively allocate our resources to meet these needs. Public employers in the United States are subject to a new Governmental Accounting Standard. Feather River Community College District pays all of the health insurance costs for eligible employees hired prior to 1994. A second retiree medical plan was established for employees hired after 1994 that limits OPEB liability by providing a defined contribution plan. Feather River Community College District pays its post-1994 retiree health insurance costs on an accrual basis. The pre-1994 plan is paid on a “pay as you go” basis. GASB Statement No. 45 (Accounting and Financial Reporting by Employers for Post-employment Benefits Other Than Pensions) requires community college districts to report retiree benefits on an accrual basis. Though GASB 45 requires districts with OPEB plans for 200 or more members to obtain an actuarial valuation at least biennially, far less than 200 employees are eligible under Feather River Community College District’s OPEB plans. Beginning in fiscal year 2008-2009, the actuarial accrued liability for OPEB plans was recorded and recognized on the balance sheet and operating statement of the District’s financial statements. As in the past couple of years and certainly going forward for the next several years there will be continued pressure and challenges in funding and operating all institutions of higher education in the State of California. Continued responsible fiscal management has placed us in a sound financial position from which we can effectively respond to the challenges of the future. The Feather River Community College District will continue to identify fiscally responsible ways to serve our student body and communities with quality educational programs. Under the leadership of our Board of Trustees and the Superintendent/President, and with dedicated support staffs, we will continue to move forward with implementing the integrated goals, priorities, and tasks outlined in the District’s Strategic Plan, Educational Plan, District’s Mission, Operational Plans and Operating Budgets.